Finch Company is considering the addition of a new product to its cosmetics line. The company has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. Relevant information and budgeted annual income statements for each of the products follow.

$\backslash$table$[[,$Relevant Information$],[$Budgeted sales in units $($a$),$Skin Cream,Bath $0$il$,$Color Gel,$],[$Expected sales price $($b$),112,000,192,000,72,000,],[$Variable costs per unit $($c$),$$$9,$$$5,$$$12,],[$Income statements,$$2,$$$2,$$$7,],[$Sales revenue $(ab),,,,],[$Variable ts $(ac),$$$1,008,000,$$$960,000,$$$864,000,],[$Contribution margin,$(224,000),(384,000),(504,000),],[$Fixed costs,$784,000,576,000,360,000,],[$Net income,$(525,000),(375,000),(100,000),]]$

Required:

a$.$ Determine the margin of safety as a percentage for each product.

b$.$ Prepare revised income statements for each product, assuming a $20$ percent increase in the budgeted sales volume.

c$1.$ For each product, determine the percentage change in net income that results from the $20$ percent increase in sales.

c$2.$ Which product has the highest operating leverage?

d$.$ Assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line?

e$.$ Assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line?

Complete this question by entering your answers in the tabs below.

ReqA

ReqB,ReqC$1,$ReqC$2toE$

Prepare revised income statements for each product, assuming a $20$ percent increase in the budgeted sales volume.

$\backslash$table$[[$FINCH COMPANY,$],[$Income Statements,,,$],[,$Skin Cream,Bath Oil,Color Gel$],[$Sales revenue,,,$],[$Variable costs,,,$],[$Contribution margin,,,$],[$Fixed cost$,,,],[$Net income,,,$]]$